big five sporting goods by canseide

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									                                                                             Rob Morrison
                                                                               Davis Neal
                                                                             David McKay
                                                                                Jon Marrs

                        Team Paper Phase Three:
                                An Industry Analysis
        We have chosen the sporting goods industry to analyze for this project. The top
firms in the industry are Dicks, Cabelas, Hibbett, and Big 5. All of these companies
bring different aspects to the sporting goods industry which makes them all very
competitive. The sporting goods product mix includes outdoor equipment like
snowboarding gear, skating gear, camping gear, hunting gear and fishing gear. They also
have fitness equipment and a large line of athletic shoes. Their product mix also includes
many other sports equipment and the even provide equipment for sporting teams.

      The target market segment for our strategic group are adults, generally between the
ages of 25 and 44. According to the U.S. Bureau of the Census states that this market
segment is the “fastest growing population bracket in the nation.” This creates a very
positive outlook for the sporting good industry seeing as how their market base is
growing at roughly 3.6 percent annually compared to the “general population growth of 1
percent in the nation.” We will first take a brief look at each company individually and
how they perform in the industry and then look at the industry as a whole. We will also
use porters five forces model to look at industry wide competition.

Dick’s Sporting Goods Store
        Dick’s Sporting goods was founded in 1948 as Dick’s Clothing and Sporting
Goods store. In 1999 it was renamed, Dick’s Sporting Goods inc. Dick’s specializes in
sporting goods, sports apparel, and athletic footwear. They carry name brand
merchandise such as North Face, Columbia, Under Armor and more. As of February 3,
2007 Dick’s owns 294 stores mostly on the eastern portion of the United States. Dick’s
sporting goods is the industry leader in sales with $3.114 billion dollars in 2007. Dick’s
Sporting Goods has had a slowly increasing profit margin over the past 3 years. In 2005
their gross profit margin was 27.8%. In 2006 that profit margin grew to 28.1%. Finally
in 2007 that gross profit margin reached 28.8%. This is a fairly steady growth. Even
though Dick’s is still expanding their business by increasing their store count each year,
Dick’s seems to have a very steady increase in their profit margins. Compared to the
industry average of 33.2%, Dick’s nevertheless has a smaller gross profit margin.

        Another important fact to consider is the inventory turnover ratio. This is a
measure of how often Dick’s rotates their inventory per year. They seem to have a fairly
steady inventory turnover at 2.9 times per year between 2005 and 2007. Compared to the
industry average of 2.7 times per year, Dick’s has a slightly higher turnover ratio.

Cabela’s
        Cabela’s Inc. is a sporting goods retail store with a focused low-cost leadership
strategy. Cabela’s seeks to lure customers into their store by focusing upon hunting,
fishing, camping and other outdoor related goods which appeal to their customer base.
                                                                           Rob Morrison
                                                                              Davis Neal
                                                                           David McKay
                                                                               Jon Marrs
Rather than seeking to push into a broad low-cost sporting goods company and place the
company in a new unknown market; the company steadily works to grow its market base
by expanding into products the market base would purchase in addition to their more
renowned items. This allows for the firm to add revenue and seek a stronger, greater
market base, while staying true to their company history.

        The company has started offering a new service to customers shopping online:
instant messaging customer service. This allows the customer to be aided while shopping
for products online. The new service has been a boost to the number of customers who
“abandoned” their shopping carts while shopping. Cabela’s also offers their
knowledgeable staff to customers shopping online. This allows the customer to ask
questions to the staff pertaining to their specific needs and customize their purchase.
Cabela’s is able to answer most customer email on specific item on an average of 2.5
hours. This has allowed the company to cut cost relating to volumes of calls to the call
center. The company is able to handle more customers by instant messaging and email
than previously through the call center. Cabela’s has seen their gross profit margin
increase slightly to 41%, well above the industry average. The Current Ratio was 1.5 and
the Inventory Turnover was 2.46.

Hibbett
       Hibbett Sports was founded in 1945 and was named Dixie supply company. In
1996 the name was changed to Hibbett Sporting Goods, Inc. Just last year they changed
the name of the company once again to Hibbett Sports. The company is currently
operating in 23 states and has over 620 stores. Hibbett, like most of the firms in the
sporting goods industry, has chosen to locate it’s stores in malls and strip centers. This
ensures a high flow of people and is congruent with the strategy of many other firms in
the market.

        Hibbett is the third largest company in the industry and has a very positive
outlook for the future. Hibbett has a price earnings ratio of 16.57 which shows that
investors have a lot of confidence in the company and feel that its performance will be
strong in the future compared with 7.7 for Big Five Sporting goods. Hibbett focuses on
the small to mid-sized markets and plans to continue it’s rapid expansion. Hibbett also
has a return on equity of 26.75 which significantly above the industry’s average and
translates in to large returns for stockholders. (yahoofinance.com & U.S. department of finance)

Big 5
        Big 5 Sporting Goods was founded in 1955 in El Segundo, California. Big 5
Sporting Goods is one the largest sporting good stores in the United States. According to
their website they have 363 stores in eleven states. They are primarily located on the west
coast. Sixty percent of all their stores are located in California. Mainly their stores are
about 11,000 square feet, which is about ¼ the size of their competitors, and usually in
strip centers. They keep their stores small to provide lower operating costs, which can
create lower prices for the costumers. (wikipedia)
                                                                             Rob Morrison
                                                                                Davis Neal
                                                                             David McKay
                                                                                 Jon Marrs
        They are currently trying to become a more neighborhood associated company by
provided exceptional customer information by contacting their local customers and
updating them with any helpful information about the Big 5 Sporting Goods store near
you. They also pride themselves on providing high-quality customer service by low cost
high-quality products and great seasonal sales on product throughout the year. Big 5
Sporting Goods is around the same size of most of their competitors except Dicks is
much larger than all of the corporations in their industry. They have a gross profit
margin of 35.6 which is about average with the industry. Their current ratio is 9.28 and
their operating profit margin is 8.5. (Answers.com)

Industry
        The sporting goods industry has an average price earnings ratio of 26.8 for 2007,
which means that investors have a lot of confidence in the industries outlook and earnings
growth. Although all of our chosen companies are below the industry average it is
important to note that all of our strategic group has a price earnings of 12 or above except
for the Big 5 sporting group. This could signal that Big 5 will be growing fairly slowly
over the next few years.

        The industry’s return on equity, is 12.1%, which is an average return for
shareholders. Three of the companies in our strategic group are at least 10 percentage
points above the industry average, which translates into big returns for stockholders.
Cabelas is the exception in this industry falling just below the industries average with an
11.7% Return on Equity. Big 5 has the highest return on equity which might be a reason
for their p/e ratio falling below the industries average. This might signal shareholders
that Big 5 is at a peak and will begin growing much slower in the next few years.

        When we look at the Dividend Yield on common stock we see that most of our
companies are expanding rapidly. We can see this because most of our strategic group
has a Dividend yield of 0. This would signal that companies are choosing to reinvest in
the company rather than pay dividends to shareholders. The only company, which does
not follow the strategic group, is Big five which could be because they are moving
towards slower growth. However, Big 5 currently pays a dividend yield of 3 percent,
which is a typical dividend for most firms.

       This information gives a good insight into the sporting goods industry. All of the
companies in our strategic group create a very interesting dynamic which will make the
next phases of this project very informative.

         There are many key measures that help companies perform well in the sporting
goods industry. When figuring the performance of the companies in the sporting goods
industry you should compare certain industry ratios from multiple areas. These areas
include profitability performance, liquidity performance, leverage performance and the
performance of activities in the industry. For a company to be measured on performance
in the sporting goods industry you should pay the most attention on inventory turnover
ratio, gross margin ratio, quick ratio and long-term debt-to-equity ratio.
                                                                            Rob Morrison
                                                                              Davis Neal
                                                                            David McKay
                                                                               Jon Marrs

        Inventory turnover is important because it shows how many times per year a
company goes trough their inventory. In the sporting goods store it is important for them
to go through high inventory turnover because they are mostly selling inexpensive
products so they need to sell many of these products throughout the year so they can
create higher profits for their companies. If they cannot sell many products throughout
the year then their inventory turnover ratio will be low and this shows they will have
trouble selling their products. A company with a low inventory turnover should invest
more in marketing and advertising to try to increase their turnover. The industry has a
very good average inventory turnover ratio of 9.06 percent. This is good for the industry
because it shows that they are active in selling and there are needs for the products that
are provided by the sporting goods industry.

        Gross margin ratio is also very important when measuring the performance of
companies in the sporting goods industry because it shows the profits that can pay for the
company’s expenses. Companies want the gross margin ratio to be high because this
shows that they are making profits that can cover their expenses and have money left
over for profits. Sporting goods stores do not sell products that most people use on an
every day basis so they will usually have a large inventory of products and when they
have large gross margin then they can cover the cost of their large inventory. Having
many different products means they usually will have high shipping cost because their
products are coming form many different wholesalers so having a high gross margin is
also important for covering these operating costs. The industry average for gross margin
is 38.68 which is fairly impressive for an industry that provides many different product
lines.

        Quick ratio is very important for every company in the sporting goods industry
because most companies will have large inventories. These large inventories can become
large debts if the company becomes in trouble by not turning over their products. The
quick ratio will show if the company can pay current liabilities without relying on the
sales of their inventory. The average quick ratio for the industry is .92 which is good
because an industry wants the ratio to be low for the best results. If a company has a low
quick ratio and they get into a very slow selling term than they will have a large amount
of problems paying off their current liabilities.

        Finally, long-term debt-to-equity ratio is also important to companies in the
sporting goods industry because it shows a companies ability to borrow money in the
future because they have good balance between debt and equity in the company’s long-
term capital structure. This is important because sports are everywhere and companies
are looking to expand their company to new locations. The industry average for long-
term dept-to-equity is .65 which is good for the industry. Corporations in the sporting
goods industry will need to look to expand to stay competitive in their industry and they
will need low long-term debt-to-equity ratios to get their funds.
                                                                             Rob Morrison
                                                                                Davis Neal
                                                                             David McKay
                                                                                 Jon Marrs
        In terms of these performance factors Dick’s sporting goods is leading the
industry. They have the best turnover ratios at 3.6 times per year. Compared to the
industry average, Dick’s Sporting goods has one of the best averages. Big Five Sporting
goods has one of the highest profit margins at 35.2%. Compared to the industry average
Big Five is keeping a fairly substantial profit margin compared to their competitors. Big
Five also has the highest quick ratio. This is because Big Five needs the additional cash
in order to make their expansions possible. This is why the company is slightly more
liquid at this time. In terms of debt to equity Dick’s has the lowest. They have a .23
ratio. This is mostly because the company has been around for longer than Big Five and
Hibbett and also because they are the largest company in the industry with many financial
backers.

        The external factors facing the company are growing. Many American’s still
want to shop in store, yet as the internet becomes more readily available many people
have found that getting products online can be cheaper and even shipped to their
doorstep. These four companies have had to boost customer service in their stores in
order to bring in more customers. Market share between these companies is quickly
closing up. There is still plenty of room for profit, however these businesses need to be
concerned about the locations of their stores across the nation relative to competitors.

        These companies also do not have much buying power over one another. Even
though they each have significant buying power against smaller firms amongst each other
these firms do not have a competitive advantage over one another. Finally, the costs
associated with shipping products is rising creating higher overhead costs for the
company forcing them to either sell more goods or raise prices. So far companies have
been able to keep sales high, however they are predicting a rise in the prices of their
goods due to inflation and higher overhead costs.

         The strategy for these companies is very uniform. Cabela’s and Dick’s both use
best cost strategy to increase their market size and draw consumers to their store
locations. Hibbett and Big 5 use broad differentiation to attract a wide range of
consumers while being specific to many different sports. Strategic choices are aimed to
attract consumers by service and knowledge of the sport or sports the consumer is
interested.

        All four companies use the common theme of offering good service and
knowledge of the sports they carry. This is encouraging for the consumer since the staffs
in the stores are able to adequately explain the sport products or potential hazards faced
while using the products or hazards. This builds a relationship with the store staffs and
the consumer; for the company, this relationship building between the staff and consumer
will hopefully return the consumer to the store in the future.

       The companies also attempt to have the best equipment and products available.
By providing the best equipment to the consumer the companies build the trust of the
consumer by providing the best equipment. The staff knowledge, of the sports which the
                                                                              Rob Morrison
                                                                                 Davis Neal
                                                                              David McKay
                                                                                  Jon Marrs
consumers participate, is very important especially pertaining to first time buyers or new
comers to the sport.

       The companies do differ slightly in the product selection of the stores. Cabela’s
and Dick’s both attempt to find a fair price in relation to the quality goods provided to the
consumers. Hibbett and Big 5 attempt to place themselves where even though the price
may be higher the selection of products will have more depth.

        The companies do attempt some niche strategy while still pertaining to the
everyday sports enthusiast. Cabela’s is particularly interested in the fishing and hunting
consumer; however they do carry many other sport products. Dick’s and Big 5 both trend
toward the team sports segment of consumers. Hibbett tends to focus upon the local team
sports and team equipment.

        One of the most impressive niche strategies in this group is used by Hibbett.
Hibbett’s marketing strategy focuses heavily upon the local team in smaller or mid-sized
markets. Since Hibbett attempts to avoid clashing with a larger competitor such as Dick’s
in a larger market, Hibbett builds their market size with smaller towns and local sports
fans that are loyal to the local area team. This allows for Hibbett to provide a hometown
atmosphere, while being a national chain with a significant revenue chain.

        In our strategic group diversification is of the upmost importance. In the sporting
goods industry there are a wide array of products that must be sold and the more diverse
the store is the more market share they will be able to achieve. However, sporting goods
stores do have to be careful not to diversify too much. They need to diversify enough to
make sure their customers have plenty to choose from but in the same respect if they
diversify to much it is possible for the company to become disjointed. All of the sporting
goods stores in our strategic group have a slightly different focus as a product base yet
they also all cover a wide range of products to draw in new customers and maintain their
current customer relations.

        Organization and execution also play a large roll in our sporting goods strategic
group. Information sharing and organizational structure play a large part in the success
of the companies in our strategic group. Take Cabelas for example. They have three
very large sections to their company. If these three portions of the company are
employing different strategies it would really stretch the company and push customers
away. All of our companies do a very good job of employing the same strategy and
through their organizational structure they work to make sure all of the segments of the
company are performing under the same standards and communicating efficiently to
make sure that their customers are satisfied every time they make an order from the stores
catalog, visit the website, or get they full experience by visiting the store. These stores
also move so much inventory and are so diversified that it is important for them to
operate efficiently or they may end up with a surplus of inventory, or not have enough
inventory, at anytime.
                                                                             Rob Morrison
                                                                                 Davis Neal
                                                                             David McKay
                                                                                  Jon Marrs
        The Sporting goods industry is very diverse and unique industry. They are a retail
industry yet there are several different forms of sporting goods. Dick’s, Hibbett, Big Five
and Cabela’s are each very unique to their region and to their customer base each
grabbing a different corner of the market and each in very different locations in the
United States. There is still plenty of room for these companies in the market for
expansion. Each of these companies are in the process of expansion and it will be
interesting to see what happens when the U.S. market becomes overcrowded.

								
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